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Thinking, Fast and Slow by Daniel Kahneman

Divides decision making into our intuitions (System 1) and our slower, more rational side (System 2). People often place too much faith in System 1 and this often leads to trouble. Offers tips and techniques into how to avoid certain psychological fallacies in order to make better decisions.

Key Takeaways

People are intuitively poor statisticians

Studied the role of intuition and how they affect our opinions and outlooks

Availability heuristic – people biased because of heuristics. Most obvious and prevalent example pops up first (shark attacks although very rare)

Resemblance and recall often used but don’t forget to also think about statistics. Farmer and librarian example where describe somebody shy and think librarian but in fact many more farmers than librarians in the world

Goal is to provide a view of how the mind works. Drawing on recent cognitive and psychological findings focusing on biases

Expert intuition strikes as magical when in a special skill but we all have some of it. Detecting anger in voices quickly, etc

Intuition is nothing more than recognition. Sometimes superior recognition, but recognition nonetheless

Affect heuristic – make decision based on gut with little use of reason or intellect.

Fast thinking uses heuristics, intuition and perception/memory and the vast majority of our decisions are made using this systems (but maybe they shouldn’t be…)

Slow thinking based on reason, deliberate thought

Broad framing – do not consider one risk or gamble in isolation, think of all of them spread over your whole life and will see that this decision actually carries very little risk

Setting for yourself certain risk policies will help alleviate some of the narrow framing issues and make decisions easier

In order to avoid hindsight bias, make decisions after very thorough thought or almost none

Pain and pleasure drives mostly everything. Understand that duration of plays a big role when deciding

Time matters greatly and need to make decisions around this. Ultimate finite resource in this life

Nothing in life is as important as you think it is when you are thinking about it

Part 5- distinction between experiencing self and remembering self. These two have differing Interests

What I got out of it

We have two systems for basing decisions on – system 1 is the intuitive decision maker and system 2 is the thorough and analytical decision maker. We often rely too much on system 1 and need to be aware of that. Judge your decisions by how they were made as opposed to how they turned out. Somewhat repetitive book but great lessons

Fast thinking – You see and make decisions immediately. Reading people, judging distance, finishing sentences, hostility in voice, easy math, innate skills, can be widely shared or specialized for example

Slow thinking – deliberate and strained thinking. agency, choice, concentration and computations, focused attention almost always system 2. Often makes people blind to other inputs when using system 2. Blind to our own blindness

System 1 is the hero and we use this most of the time but both always work together with two taking over when making difficult decisions. System 1 cannot be turned off

System 2 is in charge of self control

Easier to recognize others mistakes than our own

2- Attention and Effort

System 2 takes effort and is inherently lazy. Used as little as possible

The harder you think the more your pupils dilate

Very sophisticated allocation of attention in brain

People’s thinking patterns will trend to what is easiest. People inherently lazy

3- The Lazy Controller

If system 2 needed most people cannot walk at same time

Flow stems from a balance of both systems

When system 2 is busy we are more likely to fall to our impulses in system 1 (cheat on diet)

System 2 controls thoughts and behaviors

Overuse leads to ego depletion and giving up earlier and glucose levels drop

People avoid cognitive effort and rely on their intuition too much

Cognitive control linked to intelligence (marshmallow study)

Rationality and intelligence should be separated

4- The Associative Machine

Cognition is embodied – think with body as well as brain

Know ourselves much less than we think we do as we don’t know the majority of our thoughts as they are subconscious

We can be primed just by being exposed to words (old people words made people walk slower)

5- Cognitive Ease

Certain questions (am I safe?) continually asked by system 1 to determine if extra cognitive effort from system 2 needed

Cognitively easy you are happy and casual

If have seen something before it will see and feel familiar making you recognize it and cognitively easier

Ideas described with more complex words seen as less intelligent. Use familiar words to describe you’re ideas (rhymes often work best for people to remember)

System 2, unless trained, will often inherently trust system 1

Mood affects system 1 – happier people react more accurately and quicker to intuition experiments

Exposure effect – familiarity breeds liking

6- Norms, Surprises or Causes

System 1’s goal is to update your view of the world around you

Surprises help form world around you and prime you for what to anticipate

Violations of normality are detected extremely quickly

We often assign causes to events even if no real cause

Can say that we “see” causality like we see color

People often use causal thinking when statistical thinking should be used

7- A Machine for Jumping to Conclusions

System 2 in charge if detecting lies and 1 in believing

People believe weak arguments more when tired

Halo effect– tendency to like everything about a person if you like one aspect

Often forget that there is more than what we see. “What we is is all there is” fallacy

8- How Judgments Happen

70% of senators who were deemed to have a competent face after a quick glance won their Race. Strength and trustworthiness better predictors than likability

9- Answering an Easier Question

Intensity matching – match action with intensity of emotion

We often answer heuristics as opposed to the actual question posed

Part 2 – Heuristics and Biases

10- The Law Of Small Numbers

Statistical sampling can give strange results when using small numbers – small counties with high cancer incidents can be caused just by sampling effects

Be careful with assigning causality with truly random events

No such thing as a hot hand in basketball because it is truly random

Pay more attention to messages than the content of their reliability (sample size too small), jump to conclusions and some things have to cause – simply random

11- Anchors

Using a number as a base, or anchor, when asked to answer something else that may be completely unrelated

Anchoring has a huge effect on us and can be found everywhere. In order to get past it, find reasons as to why the anchor is wrong

Priming – our thoughts and behaviors are affected much more by our environment and other things we are exposed to than we care to admit

12- Science of Availability

Availability heuristic – the ease which examples come to mind

Ease with which instances come to mind is a system 1 heuristic

13- Availability, Emotion and Risk

More recent a disaster struck, more diligent people are but as memory fades people become less so

Media coverage warps our views of severe events

“Emotional tail wags the rational dog”

Importance of an idea depends on it’s fluency and the emotional charge it elicits

People very bad at dealing with small risks. Either ignore them altogether or overreact

14- Tom W’s Specialty

Base rate should be combined with individual circumstance. People tend to forget base case when hear individual situation or details

15- Less is More

Conjunction fallacy – When valuing objects in a group people tend to take the average so if a couple crappy baseball cards with great card it’ll lower the average people would pay for the group

16- Causes Trump Statistics

Teaching psychology mostly a waste if time as people ignore base rates when come across information that conflicts with their stereotypes

People very tough to change their minds about human nature and even more so about themselves in negative terms

17- Regression to the Mean

Reward works better than punishment

People’s great performance will likely be worse next time as they revert to the mean

Intuitive predictions are not regressive and therefore need to be corrected towards the mean

With small samples, regression to mean even more important

Part 3- Overconfidence

Chapter 19- the illusion of understanding

Humans fool ourselves by constructing flimsy account of past. Do not recognize role of luck in everything

Human mind does not deal well with non-events

People find it very tough to recall what they thought of something or an event before their mind changed

Tend to blame people too much when turn out bad and too little credit when good

World being orderly is an illusion and we can definitely not predict future from past

Leader’s effects very exaggerated. CEOs should not be praised as much as they are

20- Illusion of Validity

Often overconfident in our skills. Stock picking for example on average is very much based on luck as opposed to skill

Surrounding self with like minded people dangerous as it reinforces this overconfidence and way of thinking (financial community refuses to believe could do better than just throwing darts at random stocks)

Overconfidence in explaining past makes us believe we can predict future but are very poor at this in reality

Experts often fared worse than chance when asked to predict something in their given field

21- Intuitions vs Formulas

Experts over complicate decision making and this often hurts the accuracy of their predictions. Simple formulas often fare better than experts. Wine price example

Use formulas for decisions when possible

Intuition nothing more than great recognition

Emotional learning may be quick but becoming an expert a very slow process. Being an expert can be thought of as a summation of thousands of small skills

In order to gain a skill need a stable environment, practice and immediate feedback

Be cautious of trusting people’s judgment, even your own

23- The Outside View

Need to combine inside (case specific) with outside (general or average scenario) views

Planning fallacy – projects almost always go over budget and take longer than expected. Look at base case statistics and then alter to your specific project

24- Engine of Capitalism

Optimistic bias – people think goals more achievable than really are, better than they are and world more benign than really is

Optimistic people usually healthier and happier and often inherited from parents

Entrepreneurs more optimistic on average and drives growth although most fail

Outcome of small business depends on much on competitors ad market conditions than their own decisions

Do not fall into the “all you see is all there is” fallacy. Ask the right questions and be wary of what you do not know

Optimism might be necessary in order to get through small failures entrepreneurs and others will face on their career

Premortem is an exercise before doing project which helps lower overconfidence and spark creative thinking

Endowment effect not universal for everything you own. Depends on if own for use or exchange. Can be explained by loss aversion

28- Bad Events

Brain prioritizes things that are bad news – angry faces for example

Bad events weigh much more in out mind than good

Lottery ticket is ultimate example of possibility effect. Care less when payoff huge

30- Rare Events

Prospect theory – decision weight and probably not weighed the same

Utility theory decision weights and probability weighed the same

If don’t experience rare event don’t give it as much weight in your decisions

31- Risk Policies

Do not fall into trap of “all you see is all there is”

Broad framing – do not consider one risk or gamble in isolation, think of all of them spread over your whole life and will see that this decision actually carries very little risk

Setting for yourself certain risk policies will help alleviate some of the narrow framing issues and make decisions easier

People tend to be overly optimistic when planning something and then overly pessimistic to losses

32- Keeping Score

People keep mental accounts for their expenses or actions in order to keep score. One must be aware of these accounts and not weigh one much more heavily than others

Realize when something is a sunk cost and do not make poor decisions because have already paid for something

Keeps people at bad jobs and poor marriages

People have stronger regret to something that requires action. Even if same result but taken inaction instead you are less happy about it too

In order to avoid hindsight bias, make decisions after very thorough thought or almost none. Regret when think a little and then can look back and scold yourself

Chapter 33- Reversals

Preference reversals makes you focus on only one aspect of the task or question or decision at hand

Be aware of single evaluation (looking at a scenario and not considering anything else). Will lead to worse and less informed decisions otherwise. The broader scope will help you out things in perspective

34- Frames and Reality

Framing of a question or situation greatly affects our beliefs and preferences

Emotional area of brain active when decision matches frame, cognitive dissonance when choose something framed as lose (even if right decision), rational subjects combine the two and have little conflict

Aim to make decisions which are reality bound and not frame bound

Risk aversion or seeking also affected by frame and if a sure thing or a gamble

Part 5 – Two Selves

35- Two Selves

Pain and pleasure drives mostly everything. Understand that duration of plays a big role when deciding